If one is short a forward on a notional of 1MM and the current forward rate is 1Euro/. Few weeks later the Forward rate is 0.95Euro/. How does this translate into a gain for the position that is short? Isn't the person who is short still liable for completing the contract at 1Euro/? I have not gone all of the example but that is the jist of my question. Thanks in advance.
he has contracted to sell something to someone for 1 MM $. a few weeks later - he can buy what he needs to sell from the spot market at 950000 MM Euro, sell it to the counterparty, and get back 1 MM Euro which is what the contract was for. A Short position gains when the forward contract rate drops.
Thanks CPK.